Did the Mouse Speak Too Soon?

February 23, 2004

How does one of America's best-loved companies fend off a takeover bid? If you're Walt Disney (DIS) Chairman Michael D. Eisner, you read a note off your computer screen -- a note dictated by the Disney board after it had received a tip a few days earlier that a merger offer was coming.

That's what Eisner told an investor meeting hosted by research firm Glass Lewis on Feb. 23. According to Eisner, on Feb. 9 he read, "pretty much word for word" a response to Comcast (CMCSA) CEO Brian Robert's takeover proposal -- two days before the cable giant launched its formal $66 billion bid.

"NOT UNEXPECTED." Eisner's recounting of the events, which followed a similar description by Disney presiding board member George Mitchell, throws new light on the inner workings of Disney's board. Apparently, Disney had been tipped that Roberts would be calling Eisner on Feb. 9, and the board arranged a hurried meeting by phone to formulate a response to the anticipated takeover proposal, which at that point was not a formal offer. "Every board member was informed that a phone call might be made [from Roberts]," said Mitchell, a former U.S. senator. "[Roberts'] call was not unexpected, and Mr. Eisner responded in accordance with the wishes of the board."

Comcast officials have been howling in protest that Disney's board had told Eisner to reject the cable giant's informal Feb. 9 proposal before it had even heard the terms. "How do you as a board say no to something [when] you're not even sure [of its] value to the shareholders?" asks one Comcast official. That also seems to have struck a chord with some governance experts. "The board should at least hear the terms before it says no," says University of Delaware professor Charles Elson.

A Disney source says "no formal bid was made" on Feb. 9, and the Disney board two years back had put together a procedure that required Eisner to reject anything but a formal offer.

WILLING TO TALK? Where did the rumblings that a call was imminent come from? Hard to say, but Comcast executives have told analysts and others that they had "indications of interest" from Disney board members who were said to be willing to talk with Comcast. Those contacts supposedly came from intermediaries, not the board members themselves. Disney denies any overtures from its board members.

Five days after Comcast made its formal bid on Feb. 11, Disney's board officially rejected as insufficient the all-stock offer, which followed days of Disney's stock rising and Comcast's falling. Comcast has said that its bid -- 0.78 of its shares for each Disney share -- was sufficient and that it doesn't plan to make another offer.

Roy Disney is hoping to muster the votes to oust Eisner

Eisner appeared at the Glass Lewis event along with Disney board members Judith Estrin, Mitchell, and Ray Watson (the last two were connected by phone) as part of his campaign to buttress his standing with investors in advance of Disney's all-important Mar. 3 annual meeting. At that meeting, former board members Roy Disney and Stanley Gold will press for shareholders to vote "no" against Eisner and three other board members in a show of displeasure over a stock price that has languished for several years.

OPEN OPTIONS. The two dissident former board members have said they believe that they can get 15% to 20% of the votes against Eisner, which they hope will force the board to jettison him in favor of someone else (see BW Online, 2/9/04, "2004's Other Election Battle: At Disney").

"If they get that high a vote, the board would have to look at itself long and hard before making some decision about whether Michael Eisner is the right man for this company," says the University of Delaware's Elson. Shareholder-rights activist Robert A.G. Monks, who says he owns several hundred shares of Disney, says he has already voted against Eisner. "Board members are guardians, and they should keep open the option of a takeover, if it means greater shareholder value, not dismiss it out of hand."

In the nearly one-hour Glass Lewis session, Eisner sidestepped a question as to whether he might meet with Comcast officials to determine if a combined company might provide and possible synergies. And board member Estrin said it "is not out of stubbornness" that the board rejected the offer. Added Estrin, who's also president and CEO of computer networking company Packet Design and a former chief technology officer of Cisco Systems (CSCO): "We are looking at how to maximize shareholder value in the short and the long term." By Ronald Grover in Los Angeles